Budget Cut Not as Historically Significant as Claimed

Apropos of Robert Higgs’s recent Beacon post, “Truth and Freedom in Economic Analysis and Economic Policy Making,” my post ties in to his discussion of factual errors and interpretive errors in economic policy. Since those two terms were not presented as jointly exhaustive, let’s note an additional, often complementary type of falsehood, one identified by what I might call (provisionally and with some hesitancy) its initial, first-level effect: the self-serving error.

President Obama claimed, on April 8, that the bipartisan agreement to reduce the federal budget to $38.5 billion below the amount Washington spent in 2010 will yield “the biggest annual spending cut in history.” House Budget Committee Chairman Paul Ryan (R-Wis.) repeated the claim on April 9, calling the reduction “the largest spending cut in American history.”

The claim smells fishy, given that the cut amounts to a bit more than one percent of last year’s budget. Evidently, the analysts at FactCheck.org thought so too. After looking at the data from the Office of Management and Budget, they found that there were 19 times since 1901 when total federal spending fell by a larger rate. Here’s an excerpt from FactCheck.org’s revealing analysis:

The biggest cut, on a percentage basis, occurred in fiscal year 1920 after two years of steep budget increases to finance World War I. That year, spending dropped from $18.5 billion to $6.4 billion, which is $12.1 billion decline or about 65 percent. The $12.1 billion in today’s dollars would be worth $134.3 billion, according to the Bureau of Labor Statistics’ inflation calculator.

Likewise, there was a sharp decline in spending after World War II. Beginning in 1946, Congress cut spending for three straight fiscal years. The biggest drop occurred in 1946, when spending dropped by $37.5 billion or about 40 percent (from $92.7 billion to $55.2 billion). That $37.5 billion would be worth $425.4 billion in today’s dollars—making it the largest cut in adjusted dollars.

This year’s proposed cut is not even bigger than the reduction in spending that occurred last year, when total spending declined $61.5 billion, or 1.7 percent, after the infusion of stimulus money started to dry up. The biggest drop in spending prior to 2010 occurred in 1955, when total spending fell $2.4 billion or 3.4 percent.

The same piece by FactCheck.org, a project of the Annenberg Public Policy Center of the University of Pennsylvania, also debunks the claim, made by House Appropriations Committee Chairman Hal Rogers (R-Ky.), that the budget cut was “five times larger than any other [non-defense discretionary spending] cut in history.”

Shop at Amazon.com

By linking to Amazon.com from this page, The Independent Institute earns referral fees of 4% to 15% from whatever you buy. Bookmark the above link and you can support the Institute when you do your normal shopping!